Is Your Credit Score Important?
A credit score is a measure of financial health & is used by lenders to determine if you’re a good candidate for a loan.
A low credit score, may it difficult to get finance to grow your business. Your personal credit score can be just as important as your business credit score when applying for a business loan.
What determines your credit score?
Payment History
One of the most important factors in your credit score. Lenders want to see that you can make payments on time. A history of late or missed payments will lower your score.
Utilisation Rate
The amount of debt you have compared to your credit limit. Always being near your credit limits can hurt your score, so it’s important to keep your balances low, and/or increase your credit card limits.
Credit History
A good credit history will help to improve your score. If you have no track record, there’s no way for lenders to judge you & so they won’t trust you. So, it’s important to build up a good credit history.
Types of Credit
Having a variety of lines of credit, such as a mortgage, car loan & credit card, can help you build a strong track record.
How does a poor credit score can impact your business?
A poor score means;
- Higher interest rates: You will pay significantly more in interest over the life of a loan.
- Lending Potential: You’ll struggle to get a loan or credit card at all, this can restrict your business growth.
- Higher insurance rates: If you need insurance, you’ll pay more, because insurance companies will see you as a bigger risk.
- Supplier Relationships: Suppliers may be hesitant to do business with you, making it difficult to get what you need to run your business.
How to improve a Credit Score
There are many steps you can take to improve a poor credit score. Some things you can do include:
- Pay your bills on time
- Keeping your balances low
- Build a credit history
It’s important to prove you are a responsible borrower who knows how to manage credit. So, you actually need to use credit in to build a credit history.
Simple steps such as using a credit card to pay your household bills, rent, & being on the electoral register can help you to build a better score.
Set up direct debits to ensure that your bills are always paid on time.
Other services, such as Experian Boost, can help you start building a better credit score by tracking and reporting your payments.
Final Thoughts
A poor credit score can significantly impact your business, cause you to pay more interest on loans, struggle to get finance & pay more for insurance.
However, there are many things you can do to improve your score if it is currently low; paying your bills on time, keeping your balances low, working to build up a positive credit history to improve your score.
